weeks, the fiscal cliff. i believe that that is the term that you are credited with popularizing last february. you stress the uncertainty of fiscal policy being one of real concerns that is slowing economic growth. a deal was struck recently. what are your views of the outcome? >> when you think about fiscal policy, there are a whole lot of issues. but the two big issues to think about -- first is if there's no change over the next couple of decades, deficits will rise, debt to gdp ratios will rise and our debt would not be sustainable. very important objective for policy is to find a plan to bring the federal budget under control over the next few decades. the second issue, which in some ways seems contradictory to the first, is that we are still in a

relatively fragile recovery and we want to avoid taking fiscal action that will push the economy back into recession. that was one of the risks that the fiscal cliff posed. the challenge is to achieve long run sustainability without unduly hampering the recovery which we have. the deal that was struck together with the previous work in 2011 that involved some spending cuts made some progress in both of these goals. sustainability still abil

over the decade we have seen improvement in the debt to gdp ratio. there's more work to be done, but some progress there. and in the short run, the fiscal cliff deal on new year's eliminated a good bit of the restrictive components of the fiscal policy that would have had such adverse effects. not completely, but at least a good start. there was a bit of progress on both of these goals, very importantly. i hasten to say that we're not out of the woods, because we are approaching a number of other physical and critical watershed's coming up. we've got the funding of the

government, the so-called sequestered, which is a set of automatic spending cuts that were delayed by two months as part of the fiscal cliff arrangement, and we have the infamous debt ceiling, which will come into play. so we will be seeing a lot of activity in the next few months, debates about people criticize the government, about the size of the deficit, and it a lot of back and forth over these three issues. without going into all the different ramifications, i want to say one word about the debt ceiling, which is not everybody understands what the debt ceiling is about. the debt ceiling -- raising the debt ceiling, which congress has to do periodically, gives the government the ability to pay its existing bills. it does not create new deficits. it does not create new spending. so not raising the debt ceiling is sort of like a family which is trying to improve its credit ratings and i know how we can save money, we will not pay our

credit card bills. not the most effective way to improve your credit rating. it was a very slow solution to the debt ceiling in august of 2011 that got the u.s. downgraded last time. so it's very important. all these issues are important, but it's very, very important that congress take necessary action to raise the debt ceiling to avoid a situation where our government does not pay its bills. >> a number of people have expressed concern about how much of the challenges actually were addressed in the deal. it went part of the way, as you mentioned. but it leaves a number of issues still on the table and traditional negotiations are looming. would you characterize that as an additional cliff that is facing us? or do you think it is not as concerning as it was when you raised the term initially? >> as i said, the fiscal cliff, if allowed to take place, would

have probably created a recession this year. a good bit of that has been addressed. nevertheless, we still have a fairly restrictive set of fiscal policies now. it is estimated that federal fiscal policy will contract from real gdp growth something on the order of 1% to 1.5% this year, a significant drag on the economy. we have quite a bit to do to address our long-term still beneatsustainability issues. it's going to be a long haul. it's not going to happen overnight, basically because the government budget represents the values and priorities of the public and decisions being made about what to spend on, what do tax and so on, are difficult and contentious issues that will take some time to

address. >> those issues are not the specific purview of the fed, so why don't we shift gears and talk about some of things the fed is doing and might do. perhaps a way to introduce that is to say that the fed has been keeping interest rates at close to zero since roughly 2008. it has done a pretty deep into its arsenal of very unconventional policies recently in terms of the very massive asset purchases. recently launched its third round, which tended to bring long-term interest rates. can you tell us how well you think that is working? >> to go back one step, as you said, we have brought the short- term interest rates down almost to zer. for years monetary policy involved moving overnight

interest rates up and down and open the rest of the interest rates would move in sympathy. then we hit a situation in 2008 where we had brought the short- term rates down as far as it could go, almost to zero. the question is what more could the fed do? there were many people a decade ago, a lot of articles about how the fed would be out of ammunition if it got the short term rate down to zero. but a lot of work by academics and others, researchers at central banks, suggested there was more that could be done once you got the short term rate down to zero. what you could do in particular is try to address the long-term interest rates, bring those down. two basic ways to do that. one way is through talks, communication, sometimes open mouth operations is what it's called. the idea being that if you tell the public you are going to keep rates low in the long term, that will have the effect of pushing down long-term interest rates.

once you are asking about is what we call at the fed the large-scale asset purchases otherwise known as qe. the idea there is by buying large quantities of longer-term treasury securities or mortgage- backed securities, we can drive down interest rates on those key securities and that in turn affects spending and investment in the economy. the latest episode - so far we think we are getting some effects. it's kind of early. but overall it is clear that through a day three iterations you referred to, we have succeeded in bringing down long- term rates pretty significantly and clear evidence of that would be mortgage rates. the 30-year mortgage rate is something like 3.4% now. incredibly low. that in turn makes housing very affordable.

that in turn is helping the housing sector recover, creating construction jobs, raising house prices, increasing activity in that sector, real estate activity, and so on. broadly speaking, we have found this to be an effective tool. but we will continue to assess how effective, because it's possible, that as you move through time and the situation changes, that the impact of these tools could vary,. what we have decisively shown is the short-term interest rate at 0, but zero lower bound problem, does not mean the fed is out of ammunition. there are still things we can do and have done. other central banks around the world have done similar things and have also had some success in creating more monetary policies support for the economy. you mentioned that mortgage

rates have come down to the initial round. the concern is that the unemployment rate remains very high and to further increase activity to try to bring that down, one would hope to see some additional movement from the most recent round. are you suggesting that one would need to be patient? would you say more about how you would assess whether this most recent round is having the kind of affect you would expect or anticipate? >> as i said, we will be doing that on a regular basis. we will be looking first at the impact on financial markets. we do see some impact there. we will be looking to see whether or not the labor market situation is improving. there has been some modest improvement. when we first began talking about the latest round, the unemployment rate was 8.1 and

now it is 7.8. we would like to see a stronger labor market. a labor market with nearly 8% unemployment with 40% of the unemployed having been out of work six months or more, that is not an acceptable situation. too many people whose skills and talents are being wasted and have been suffering significant hardships. so we're looking to see improvement in the labor market and in the economy more broadly. we will continue to evaluate. i cannot give you specific criteria other than to say we will assess the impact of our actions on financial market conditions and " to see how those link to developments in labor markets and in the broader economy. as always, you have to make assumptions. you have to ask yourself what would have happened if we had not taken these actions?

again, the evidence seems to be in -- not only evidence in the u.s. but also the u.k. and elsewhere -- these types of policies do have some impact on the economy. at this point, having reduced the short-term interest rates close to zero, we are looking for the tools we can get to get better outcomes. >> so, hopefully, there will be more of an impact going forward, to continue to bring the unemployment rate down more quickly. you mentioned you are looking at the kind of tools available. is there more into a tool kit of the fed that might have the kind of power to have additional affect? >> first, on the pace of improvement, but is an interesting question. the pace of economic growth over the last two years, since the beginning of recovery, has not been as strong as you normally

would think would be needed to get really big improvements in the labor market. nevertheless, we have seen a decline in unemployment from 10% to 7.8%, which is really significant, and we hope to see ongoing improvement. so it's hard to judge how much more but we will see. certainly we want to keep things going in the right direction. in terms of additional tools, as i mentioned, once you get the short-term interest rates down to zero, there are two principal approaches. peter securities purchases or communication. -- either securities purchases or communication prepares the interest rates we pay on x x reserves, as well. the excess reserves. we can look for ways to improve communication and be more effective.

but there's no completely new method we have not yet used, as far as i know. >> we have just had a meeting of the detroit board of the board of directors of the chicago fed, as you know, which provides some information about the conditions more explicitly in this region and the conditions across the country are quite varied. i wonder if you could share how you factor in the differences across different parts of the economy when making decisions that are more aggregate? >> thank you, dean collins, first, for joining the detroit branch. people probably don't know, unless you have been studying this, but every federal reserve bank around the country, but 12 reserve banks and a good number of additional branches, each one has a board of directors drawn from the private sector. it could be academics, it could

be businesspeople, it could be community leaders, nonprofits, organizers, and so on. we draw these people in primarily to give their input and their insight. this is a very large and complex economy. there are many different sectors. it's very helpful to us to have people from -- leaders from different parts of the economy, from different parts of the country providing this input and giving us somebody to bounce ideas off of, to help us make a better decision and understand what's going on. so that's very useful. i attended part of the meeting this morning with the detroit branch and i heard from a number of people about the auto industry, health care, academics, industry, a variety of things. so that is actually very useful. now, in terms of the local economy, michigan is still,

notwithstanding that it has become much more diversified, it still has a pretty significant reliance on automobile production. because auto sales dropped so sharply during the great recession, the unemployment rate here rose 15% or something like that compared to a 10% national peak. it has now come back quite a bit as the auto industry has improved. and so, we're seeing some strengthening, although conditions here are still not aware we would like them to be. the housing market also has come back some in michigan. like many other industrial parts of the country, like pittsburgh steel plants and other places, michigan also is diversifying and is bringing in high-tech, various kinds of services, health care, education, and so on. places like the university of michigan, ann arbor, are a

tremendous resource for entrepreneurs, people trying to develop new high-tech businesses. so it is a good sign to see that america still has a powerful industrial base, but it is diversifying into a wide range of new types of industries. so it is a large and complex economy. i don't know if you want to talk about the broader economy or not, but we can come back to it if you like. we have been seeing some improvement in the labor market. it is still not where we would like it to be. growth has been moderate. there are some positive signs to look at. one of the key positives that are already made reference to its housing. as you know, house prices in the u.s. fell 30% and the amount of construction fell extraordinarily over this recession. now for the first time really

since 2007 or 2006 we are starting to see increases in production, rising house prices will affect household wealth. so that's one positive factor that will help us have a better year in 2013 and in 2014, i hope. if a few other things that are positive, one is that state and local governments, which have been in very contraction in remote because the loss of tax revenue during recession and laying off people, having postponed spending, they are in much better shape now than they were in a few years ago, including michigan. as a result, they will not be the drag on the economy they have been the last few years. the energy industry in the u.s. is looking much stronger. consumers are more optimistic. university of michigan publishes

the index of consumer sentiment, which is one of the very best guides to how consumers are feeling. as long as the fiscal policy and thing is too messed up, consumers seem to be little bit more upbeat. so there are some positives. but i want to be clear that, while we have made some progress, it is still quite a ways to go before we are where we would be satisfied. >> well, let me shift gears a little. certainly, as you know, there are some very vocal critics of fed policy. i wonder what you might say to those who argued that the policy that has maintained interest rates at such low levels has taken some of the pressure off of congress to try to address these fiscal challenges and that the massive asset purchases have created extremely high risks for future

inflation. >> the critics are on both sides. give the other guys a chance. [laughter] >> i will get there. >> you'll get their later? >> i'll give them a chance. >> let me first say that as we think about the costs and risks of any policy, we should also think about what we are trying to accomplish. i made reference already, but the federal reserve has a dual mandate from the congress to achieve or at least try to achieve price stability. and stability. price stability means low inflation. we have basically taken that to mean to% inflation. inflation has been very low. it's been below 2% and appears to be on track to stay below that. so our price stability record is very good. unemployment, as we have already discussed, is still quite high.

it has been coming down, but very slowly. the cost of that is enormous in terms of lost resources, our chi -- harship, talents and skills being wasted. our effort to try to create more strength in the economy to try to put more people back to work, that is an extraordinarily important thing for us to be doing. if i think it motivates an end justifies what has been an aggressive monetary policy. so that is what we are doing and that is why we are doing it. are there down sides or potential costs and risks? there are some. you mentioned inflation. we have, obviously, used a very expansionary monetary policy. we have increased the monetary base, which is the amount of reserves that banks hold with the fed. some people to think that will

be inflationary. personally, i don't see much evidence of that. inflation has been quite low, as i mentioned. inflation expectations remain quite well-anchored. forecasters don't see any inflation coming up. in particular, we have, i believe, all the tools we need to undo our monetary policy stimulus and to take that away before inflation becomes a problem. so i don't believe significant inflation will be a result of any of this. that being said, price stability is one part of our dollar mandate. and we will be paying very close attention to make sure inflation stays well-contained, as it is today. the second issue worth mentioning its financial stability. this is a difficult issue.

the concern is, has been raised that by keeping interest rates very low, that the federal reserve induces people to take greater risks in their financial investments and that in turn could lead to instability later on. again, a difficult question. i probably could take the rest of the hour talking about it, so i don't think i will. but i will say we are, first of all, very engaged in monitoring the economy, the financial system. the fed has increased enormously the amount of resources we put into monitoring financial conditions and try to understand what's happening in different sectors of the financial markets. we have also been part of the very extended effort to strengthen our financial system by increasing capital in banks, by making derivatives transactions more transparent,

by toughening supervision, and so on. so we are taking measures to try to prevent financial instability and to identify potential risks that we would then addressed through regulatory supervisory methods. so we are very much attuned to those issues. once again, this is something that we need to pay careful attention to. and, as we discussed in our statements, and have for a while, as we evaluate these policies we will be looking at the benefits, which i believe involve some help to economic growth and reduction of unemployment. we want to make sure that the actions we are taking are fully justified in a cost benefits type of framework. i did not talk about the congressional issue new mentioned.

i think it's not really up to the fed to try to be playing games to try to induce congress to do what it is supposed to be doing. congress needs to be addressing these fiscal issues. interest rates will eventually rise. we hope they will. because that means the economy will be strengthening. so we are not going to play games with that. we are going to follow our mandate, which means do what is necessary to help the economy the strong. congress should take care of their job, which is to address the fiscal issues that we talked about earlier. and i don't think that small changes in interest rates will make that much difference. i think the worst thing we could do, if we raise interest rates prematurely and caused a recession, that would greatly increase budget deficits and would make the solution to the problem all that much more difficult. so i don't see that raising

interest rates in order to force congress to take action on fiscal policy is a very sensible way to go. as i mentioned, you came to your position with a real expertise as one of the world's experts on the great depression and how policy makers should react in the midst of a crisis. now that you have actually lived through a major global crisis, i wonder if you could tell us what surprised you most. >> the crisis. [laughter] i was very engaged, very interested in financial crises. as an academic, i worked on the great depression. i did theoretical work on the role of financial crises in macro economy. i was very interested when i came to the fed in addressing

issues related to financial crises. obviously, this was a very large and complex crisis that was more severe than i anticipated, certainly. it would be fair to say more severe than most people anticipated. but we did learn some things from history. i think there's a lot of value to studying history, particularly from our perspective, economic history, because it helps you to see what your predecessors did wrong and did right. two things we learned from the great depression. one of them was not to let monetary policy get suicide -- get too tight. in the 1930's they did not try to expand monetary policy accommodation. as a result there was 10% per year deflationary, falling prices, very damaging. the fed also did not do much in the 1930's of to try to stabilize the banking system,

which a third of the banks in the country failed. those were two lessons that we try to learn from. we have been discussing very aggressive monetary policy and we took strong action to try to stabilize our financial system, because we understood that if the financial system collapses, the and the economy is likely to collapse as well. so we took those actions, learning from what had happened in the 1930's. a couple other things that were useful, during the 1930's, in part because the world was still recovering from world war all- in-one, there was a lot of international amity, cooperation among central banks, among governments was not very good. your audience may no doubt the pterosautariff wars.

a global crisis like this one, it's very important, if you can, to cooperate, coordinate as much as possible with policymakers around the world. that was something we did quite actively, both in terms of banking and financial regulation, stabilization, and even to some extent in monetary policy when five or six of the world's largest most important central banks' coordinated on interest rate cut. we also worked through central banks to make sure that they have enough dollars to lend for banks and a need to use dollars in their transactions. so cooperation has been very helpful in the latest episode. that was another thing that we learned from the 1930's. one last thing that occurs to me, one reason that the fed and

other policy makers did not take more aggressive fundamental action to try to end the great depression was there was the gold standard. there was a whole variety of standard practices. given the great uncertainties that they faced, i am not being critical. it was an incredibly difficult. . -- difficult period. they maintained an orthodox approach. president roosevelt did a lot of different things. some of which did not work. some of which did. sometimes when you are in a severe situation, you need to consider unorthodox approaches. the fed and other central banks did undertake some on percent -- on orthodox policies.

we did help to stabilize the global financial system and begin a process, still underway , or in economy back to where we would like to see it. >> you raised the issue of what is going on globally. the cooperation that has emerged, which is certainly a positive thing. of course, those global images are important in terms of aspects for us growth. if you look over the medium term, where would you see a plausible scenario to generate the demand for the growth we hope the us is able to achieve? we are not eager to go back to the very high household consumption levels that were arguably unsustainable. given the challenges in europe and slowing growth in china, not so clear where the growth might

come from. i wonder what your thoughts are about that. >> it is true that global growth has been somewhat slower. a variety of reasons. one is the european situation, which you alluded to. much of europe is in recession at this point, following the difficult financial problems that they have had. some emerging market economies have slowed for a variety of. the slowdown in china was at least partly a policy goal to try to create a more sustainable and stable growth pattern and shift the sources of demand in china from foreign buyers exports to domestic demand. a variety of things have

happened to slow overall growth. we saw in the us, pretty weak export numbers. for us, that is a loss of potential growth from our person active. there are a couple of challenges. different parts of the world that are facing slowdowns, each has to address its own set of issues. in europe, some progress has been made in addressing their sovereign debt and banking issues that they have. the european central bank has taken some important steps to try to stabilize financial markets there. they have been helpful. they are working on improving their fiscal arrangements. both to create longer-term sustainability and individual countries and also to put up a set of agreements under which countries would be willing to work with each other on fiscal matters. they are working to develop a banking union where bank

regulation would take -- be done throughout the eurozone by ecb or some other agency. that would strengthen the european banking system and make it less dependent on individual countries. steps are being taken in europe, which i hope will help stabilize the situation over time. in the emerging markets, you have a variety of different stories. the fundamentals there in the emerging markets are pretty good. even if there is some moderation of growth in some countries, we are seeing overall a rather remarkable transformation of places like china and india, which is then the biggest anti- poverty program in history. the growth in those countries has lifted many millions of people out of poverty. the growth will proceeded in

those areas as well. with each country, latin america, asia, dealing with different sets of issues. >> i know that our audience has many questions to pose to you. perhaps, let me ask one final one before i turn over to our students. given all of the range of things that we have already discussed, is there -- are there to particular things that keep you up at night? >> we have a dog that sleeps with us. i try to get as much sleep as of. that is probably good. it did not work out today, because the airline canceled -- it is a long story.

i want to see our economy recover. i would like to see this -- stronger labor markets, fiscal policy address the issues that i mentioned. there are a lot of difficult issues out there. i do think things are moving, not as fast as we would like, but in the right direction. i am cautiously optimistic about the next couple of years. >> thank you. [applause]as i mentioned, i am sure that there are a great many questions that have already been shared with our presenters. let me turn the floor to them. quick thank you for your comments chairman bernanke. i am a masters student. the first question is this --

if treasury minted a trillion dollar platinum coin, with the fed have except did it -- accepted it? >> i am not going to give that any oxygen. as you probably know, the treasury and federal reserve -- the treasury issued a statement that we did not think this was the right way to deal with this problem. there are legal issues and policy issues. the right way to deal with this problem, as i said earlier, is for congress to do what it is supposed to do. authorize an increase in the debt ceiling so we can pay our bills. that is the right way to do it. i think that is what will eventually happen.

i do not think that going off in the other direction would really be helpful. >> hello chairman bernanke. i am a second year mpp. second question from the audience, does the debt ceiling still have a practical are busy and could it be in limited without much consequence? >> no, it does not really have -- it has symbolic value, i guess area. no other country, i believe, have this particular institution. just so everybody understands what it is, the congress appropriate $100, tells the government to spend $100 on whatever. then it raises $80 in revenue

through its tax code. the arithmetic care -- you have got to borrow $20. no, the congress has to give a third rule which says that 100 - 80 equals 20. if the congress is approving spending and taxing, and they are not equal, then logically, there has to be something to make up the difference. that is borrowing. i am not saying that visits and deaths are a good thing thing. not at all. the way to address it is to have a sensible plan for spending and revenue. make decisions about helping the government should be or how small it should be. again, this sort sort of like a family saying, well, we are spending too much, let's stop paying our credit card bills. that is not the way to get yourself into good financial condition. i think it would be a good thing

if we did not have it. i do not think that is going to happen. i think it is going to be around. i do hope that congress will allow the government to pay its bills. not raise the possibility of default. that would be very costly to our economy. then address these fiscal issues very seriously. i am not saying we should not that. there are a lot of area important issues. let's do that. we do not need to do it in the context of the debt ceiling. >> do you believe that the fed could prevent future asset uploads? -- doubles -- bubbles? what tools do have to do that? >> it is difficult to anticipate. we can do some things. first of all, we can try to

strengthen our financial system. by increasing the amount of capital and liquidity the banks hold. by improving supervision of those bank. by making sure that every important financial institution is supervised by somebody. there were some important ones during the crisis that had no effective supervision. you make the system stronger. if a bubble or some problem emerges, the system will be better able to meet -- be more resilient. youth and try to identify bubbles. there has been a lot of research on that. we have created a council called the financial stability oversight council. it is made up of 10 regulators and chaired by the secretary of the treasury.

one of whose responsibilities is to monitor the financial system, as the fed also does, and identify problems that emerge. you are not going to identify every possible problem, but you can do your best. you can try to make sure the system is strong. when you identify problems, you can use, the first line of defense needs to be regulatory and supervisory qualities. not only the fat, but other organizations -- said -- not only the fed, but other organizations. as i was saying earlier, there is a lot of disagreement about what role monetary policy plays in creating asset bubbles. it is not a settled issue. some people think it is an

important source, others think it is not. we need to be open-minded about it and pay close attention to what is happening to the extent that we can identify problems. we need to address that. the federal reserve was created in -- about 100 years ago now. 1913 was the law. not to do monetary policy, but to address financial panic. and that is what we did in 2008 and 2009. it is a difficult task. going forward, the fed needs to think about financial stability. we will be working very hard on's -- on financial stability. we will try to strengthen the

financial system. if necessary, we will adjust monetary policy. i do not think that is the first line of defense. >> this question comes from twitter. as the declared it was targeting a two percent inflation rate in january 2012, the f omc has released its projections five times. each one of these, the inflation rate has come in below this target. why is the policy and set to consistently under should the target? >> was that 140 characters? [laughter]>> i suspect our audience had related questions. >> a very good question. as i said earlier, when the team is asking me about -- dean was

asking me about the risks of some of our policies, i was pointing out that inflation is very low. below two percent target. unemployment is above where it should he. there seems to be a strong presumption that we should be aggressive in monetary policy. that does make the case for being aggressive, which we are trying to do. the additional point that i made was that the short-term interest rate is close to zero, and we are now in the world of nonstandard monetary policy. asset purchases and communications and so on. as we were discussing earlier, we have to pay close attention to the costs and the risks and the efficacy of these policies as well as the potential benefits. to the extent that there are cost or risks associated with nonstandard policies, which do

not appear, or at least cut to the same degree poor standard policies, economics tells you when something is more costly, you do less of it. we are being accommodating. we are working hard to try to strengthen the economy. inflation is very close to the target. it is not radically far. in trying to think about what the right policy is, we have to think not only about macroeconomic outlook, which is critical, but also the cost and risk associated with the individual policies that we might apply. >> i would like to follow up on that question a little bit. one of the things you mentioned earlier in the toolkit and you have been trying to use in a variety of ways is the way that the fed explains his policy to the public. first there was the number of announcements that set dates

for how long interest rates would remain low. or recently, the move to making conditional on performance. a variety of changes such as more information in the minutes about the kind of information or discussion that has happened at the fed. i wonder whether that increased information about what the fed is thinking is being more effective or complicating the message to some degree? >> that is up to the auditors and beholders to to determine if it is helpful or not. i think that to address your points, switching from the date -- when we started out i trying to convey to the market when we thought short-term interest rates might start to rise, initially we gave a date.

that was just our best guess. as conditions changed, we changed that date a couple of times. a better way to do it is, instead of talking about a date, which is a nontransparent way to explain what you are doing. people say, how did they get that date? what does it mean? but we have tried to do more recently is to explain what we will be looking for in terms of unemployment inflation, our two main objectives. before we begin the process of raising interest rates. that is much more transparent and helps people understand what our thinking is. also, if the outlook changes and some good news comes in about unemployment, if we were using

the date, evil would not know how to adjust that. had we change that? it it it valid or not? we are using these guideposts in terms of inflation and unemployment. the investors and the market can say, well, the date where we get to 6.5 cent unemployment seems to be a little closer than that. that would allow us to when the fed will respond. that should allow a greater clarity about how policy will evolve over time. that is our goal. we have worked as a committee. it is not easy to work with 19 people strong opinions. we have tried to increase our clarity and communicate more clearly. each change can be debated.

if you look at the broad sweep of what we have accomplished in the last 15 years at the federal reserve, it has been an enormous change. we are much more transparent and easy to understand them would have been the case 15 or 20 years ago. >> the shift from said speak to talking about fiscal cliff is quite striking. >> this is from an audience member. what is one aspect of financial policy that you think requires perform but is not being discussed in the media? >> i think the main area that has been put aside for the time being is the governments bonser to enterprises. fannie mae and freddie mac, which were taken into receivership at the beginning of the crisis, because of the

losses they suffered cuts of low levels of capital. a pretty widespread agreement in washington that reform is needed. the dodd frank bell is broad and has covered major parts of the financial system. >> this is from an audience member. had he respond to the people who question the constitutionality of the federal reserve and would like to severely weaken it? had he respond to members of congress who wish to audit the fed?

>> i am not a lawyer. the fed has been around for a century, and nobody has had a supreme court case. i am not owing to get into that issue. i think the fed performs the critical role of managing the monetary system, which is the power it that congress has to delegate. let me talk to the other issue, which i think is more substantive. as you know, there are bills in congress that would audit the fed. it sounds like something -- how could anybody object to it? don't you have to look and see what is on people's books? the trouble with that, that is not what it is about. it is a misnomer. the fed looks are thoroughly

audited. we are audited by an outside i did sector accounting firm, which gives us a clean bill of health. second, all of our books and financials are open to the gao, which works for congress and the government and can look at anything it wants to look at. third, the independent sector general that is able to evaluate any aspects of the fed 's financials and activities that it would like. if you would like to see more, the fed's website has a detailed discussion of the various audits that we go through. all our financials and activities are thoroughly audited. with one exception. that is that in the law which

created the government accountability office, there is an exception for monetary policy. the gao can do anything it wants but what it cannot do is go in and audit a monetary policy decision. but the audit the fed bill would do would be to strike that cause. if the bill passed, then a congressman who did not like it, the gao could send its staff into the federal reserve to look and see, why did you raise interest rates? and begin to investigate the decision. that is the first step toward the federal reserve no longer being an independent central bank. there is strong agreement around the world that if you want monetary policy made haste on long-term considerations and

not short-term political considerations, the central bank needs to have some decisions. this bill would strike at the heart of that independence. many people who support the bill think that it means what it sounds like, which is something about the financials. it is nothing to do with financials. it is whether or not congress can pass a gao, investigate a decision by the fed that it does not like. if you want a healthy economy, you want to have a strong and independent central bank. that is not consistent with that though. >> last question from twitter. it is a veteran discussion -- there is a vibrant discussion

of this on social media. to do you get anything from those? >> i read logs -- blogs. 140 characters limits discussion on twitter. i think blogs have become an important source of intellectual exchange. the same way -- there was an important step, it used to be years ago that if you are an academic and you wrote a paper, then you had to submit it to a journal, it took two, it's got published. then came the internet. soon, papers were available almost immediately for professional evaluation.

even that involved the long delay involved in doing the research and writing the paper and so on. what if you had a short-term perspective or idea that you wanted to put out there? the internet has provided useful ways for people to communicate and discuss interesting ideas in monetary policy or anything else. i follow a lot of baseball blogs. that is the next natural step to creating a conversation among people. that has been very constructive. there are a few federal reserve blogs. the atlanta fed has one. the new york fed has one. we have twitter and facebook. we are moving along here. so, we are still a little bit old-fashioned.

i think the social media does provide a convenient way to communicate the way -- communicate quickly and strange ideas. -- exchange ideas. some positive developments there. >> we should encourage you to follow the tigers. unfortunately, we are out of time. i would like to thank our questioners for posing the questions. i would like to thank all of you in the room and online for joining us in today's conversation. you can find information at the ford school on our website. i hope you'll follow us. >> several live events this morning. the council for science and the environment discusses disasters in the environment. the discussion will focus on the lessons of hurricane katrina,

the ongoing drought, and the earthquake in japan. that is on c-span3 at 8:30 on with -- , today's a few moments headlines and phone calls, live on washington journal. the us house of representatives will be in session at two o'clock eastern. a disaster aid spending bill for hurricane sandy. in 45 minutes, we will be joined by scott rigell of virginia. we will talk about his recent we will talk about his recent letter to